Bitcoin Faces $15,000 Crash As US Triggers ‘Financial Meltdown’ – Arthur Hayes

In his latest blog post published on January 19, Arthur Hayes, the former CEO of the BitMEX exchange, predicted a “global financial meltdown” thanks to future economic problems in the United States.

Hayes: Crypto will ‘get smoked’ in Fed pivot

Bitcoin’s current rally should probably not be taken as the start of a new bull run, says Hayes in the recent treatise on US macroeconomic policy, warning that cryptoassets will “smoke” as Federal Reserve policy moves from restrictive to liberal.

With inflation slowing in the US, the Fed is the focus of virtually every crypto analyst this year as they estimate the likelihood of a policy “pivot” away from quantitative easing (QT) and rate hikes to flat and then falling rates, and potentially even quantitative easing . easing (QE).

This essentially involves a move away from draining the economy of liquidity to injecting it back in, and while that practice led to new records for Bitcoin starting in 2020, the same phenomenon won’t be common next time around, Hayes believes.

“If removing half a trillion dollars in 2022 created the worst bond and stock performance in a few hundred years, imagine what will happen if twice that amount is removed in 2023,” he wrote.

“The reaction of the markets when money is injected vs. withdrawn is not symmetrical – and as such, I expect the law of unintended consequences to bite the Fed in the ass as it continues to withdraw liquidity.”

As such, rather than a smooth transition away from QT, Hayes is banking on extreme circumstances forcing the Fed to act.

“Part of the US credit market is breaking down, leading to a financial meltdown across a wide range of financial assets,” he explained.

“In a response similar to the action it took in March 2020, the Fed calls an emergency press conference and halts QT, cuts interest rates significantly and resumes Quantitative Easing (QE) by buying bonds again.”

This again means “risky asset price craters.”

“Bonds, stocks and every crypto under the sun are being smoked as the glue that holds together the global USD-based financial system dissolves,” the blog post continues.

Current estimates, as shown by CME Group’s FedWatch Tool, overwhelmingly favor the Fed slowing the pace of rate hikes at its next decision on February 1.

Planning a repeat in March 2020

Hayes is far from alone in being suspicious of Bitcoin (BTC) as a solid “buy” at the moment after two weeks of near-vertical price growth.

Related: Bitcoin Sees New 4-Month High As US PPI, Retail Data Record ‘Big Misses’

As Cointelegraph reported, various commentators are betting that new macro lows will continue to emerge, with BTC/USD taking out the floor from the fourth quarter of 2022.

Those who take a leap of faith and gather now therefore face serious risk before reward.

“This scenario is less than ideal because it would mean that anyone buying risky assets would now be on the hook for massive declines in performance. 2023 could be as bad as 2022 until the Fed swings,” Hayes wrote, but still called that scenario his “reason .”

If that means a retest of the 2022 lows, the area between $15,000 and $16,000 will be a key zone of interest going forward.

“I want to know that the market has likely bottomed because the crash that occurs when the system temporarily breaks will either hold the previous $15,800 lows or it won’t,” the blog post concludes.

“It doesn’t really matter what level is eventually reached on the drawdown, because I know the Fed will later go to print money and stave off another financial collapse, which in turn will mark the local bottom of all risky assets. And then I get a new setup similar to March 2020 that requires me to back up the truck and buy crypto with two hands and a shovel.”

Bitcoin faces a drop to $15,000 “or lower” as part of mass risk asset capitulation, says Hayes.

BTC/USD consolidated at $20,800 at the Wall Street open on January 19, data from Cointelegraph Markets Pro and TradingView show.

The views, thoughts and opinions expressed herein are those of the authors alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.